Hi Allen, Some years ago I read a quick little book that attempted to combine the teachings from "The Art Of War" with creating an investment strategy or response. It was completely devoted to very short term trading mentality. I found it somewhat useful and then wrote a quickie version for the AIM user. Please substitute v-Wave anywhere it says Idiot Wave. They're not quite the same, but the both respond to the markets in a similar way. Here's what I was thinking at the time:
Sun Tzu's "Art of War" For Traders and Investors By Dean Lundell
Mr. Lundell says, "Today's financial markets are the last bastion of unabashed conflict.....
To participate, you must be your own general, devising a strategy, gathering information, executing your plan, and adapting to the situation."
How can we use AIM and the Idiot Wave for strategic and tactical planning to carry out Mr. Lundell’s requirements to participate in the Equity Markets?
Be your own general
You are in charge. You are responsible. When you win, you benefit. When you lose, only you are to blame.
a) Broad trends persist. Discover them. They will survive boom and bust.
b) Don't contemplate engaging in war while beholden to another. They could become your ruler!
To me this means "Stay away from Margin Buying unless you are certain of victory."
c) Establish and maintain a "Baseline of Survival" for your command.
This is the "income" side of my overall portfolio.
d) Know that reality is governed by Darwinism; Long Term Survival belongs to the fittest.
Devise a Strategy
Our strategy is to sell inventory into market strength and to buy into market weakness. Robert Lichello's AIM algorithm provides us with a systematic approach to follow that employs this strategy.
a) Sell quality merchandise to all those willing to pay.
b) Buy quality merchandise when the price offers reasonable hope to resell at a profit.
c) Let the allocation of resources and inventory be governed by the course of the market and AIM's guidance.
Gathering information
Today there is no excuse for not being informed.
a) Differentiate between information VOLUME and QUALITY.
b) Differentiate between FACTS and OPINION.
c) Find good sources of judgement where you cannot act as judge.
d) Information is trusted only when provided by those proved trustworthy.
Adapting to the Situation at Hand
The Idiot Wave measures general U.S. Market Risk (and may be sensitive to world market risk) from low to average to high. This helps you gauge the situation by:
a) Gauging your initial cash reserve requirements on new investments
b) Gauging your on-going cash reserve requirements on established investments
c) Judging whether to establish a bias for accumulation or distribution
d) Possibly starting no new AIM accounts when the Idiot Wave is showing High Risk
e) Possibly ignoring all AIM Buy Signals during IW High Risk events.
f) Following all AIM buy and sell signals during IW Average Risk events
g) Possibly ignoring all AIM Sell signals during IW Low Risk events
h) Re-assessing your "Baseline For Survival" at times when AIM has your account heavily in Cash
i) Always attempting to beat measured inflation by 5 percentage points minimum after all taxes and living expenses are paid. If you do this consistently, in good and bad markets, you will be winning long term
j) Using "vealies" when your positions are cash rich relative to the IW. Limiting supply helps to keep Momentum player’s Demand high.
Execute your Plan
Set the plan in motion; know that it takes time for realization. Follow the plan without hesitation allowing the goals to be realized. The strategy is sound so execution is all that is required.
a) Buy when the plan says
b) Sell when the plan says
c) Be very patient when no buy or sell signals are being generated
Reading Mr. Lundell's interpretation of Sun Tzu's work will help you focus on your own plan. It will arm you with knowledge of what others not using AIM are doing in the market. Understanding Short Term Trader's strategy and tactics is like having a spy in the enemy's camp. AIM users can profit by knowing just how these people think and act. AIM acts as almost a mirror image of what goes on in a trader's mind.
AI
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